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BLAW > Quiz 5 > Flashcards

Quiz 5 Flashcards

1
Q

Characteristics of a Sole Proprietorship

A

-owner is the business

  • get all profits
  • fewer legal formalities
  • only pays personal income taxes on business profits
  • Personal assets at risk (unlimited liability)
  • business dies with owner
  • limited ability to raise money
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2
Q

Characteristics of a partnership

A

-States treat a partnership as a separate legal entity that sue and be sued

-Tax law treats it as a pass-through entity
(Partnership itself doesn’t pay the taxes, partners do)

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3
Q

Partnership by Estoppel

A

Occurs when a third person has harmfully/reasonably relied on representation by a partner that a non-partner was part of a relationship

Non-partner’s action binding on the partnership

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4
Q

General vs Limited Partners

A

General: informal
-no written agreement needed

Limited: at least one general and one limited partner

  • not the same as an LLC, limits the liability of some of its owners
  • in a LP, general partner fully responsible, limited contributes only cash/property (not involved in management, not liable)
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5
Q

Characteristics of an LLC

Hybrid

A
  • Combines the limited liability of a corporation and tax advantages of a partnership
  • Owners shielded from personal liability but can still lose the capitol they invested
  • Governed by state law (LLC statutes vary from state to state)
  • LLC is a legal entity separate from its owners
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6
Q

Advantages and Disadvantages of an LLC

A

Advantages
-Limited liability

  • Flexibility in taxation
  • Flexibility in management

Disadvantages
-Non uniform state laws

-Costs more $

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7
Q

Characteristics of an LLP

Hybrid

A

-Mainly for professionals
(who normally do business as partners in a partnership)

-PROFESSIONALS CAN’T SET UP LLCs

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8
Q

Liability: Sole Proprietors

A

Owner has unlimited personal liability

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9
Q

Liability: General Partners

A

In a LP, general partners are fully liable

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10
Q

Liability: limited partners

A

In a LP, limited partners aren’t personally liable for debts beyond what they invested into the company

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11
Q

Liability: partners in a partnership

A

-Partners are personally liable for the debts of the partnership
(Basically unlimited liability)

-New partner not liable for prior obligations

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12
Q

Liability: Members of LLCs

A

Shielded from personal liability but can still lose invested capitol

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13
Q

Liability: members of LLPs

A
  • Professionals can avoid personal liability for malpractice of other partners
  • Unlike an LLC, a partner in an LLP is still liable for their own actions
  • LLP partner who supervised another is also liable
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14
Q

Liability: corporate shareholders

A

-Not personally liable unless corporate veil is pierced

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15
Q

Liability: Corporate Officers

A
  • These are employees hired by directors
  • Responsible for daily management
  • Can go to jail for actions
  • Corporations are liable for crimes committed by employees
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16
Q

Liability: Corporate directors

A

-Elected by shareholders, same liability as officers

17
Q

Franchise agreement and relationship between Franchisee and Franchisor

A

Franchise Agreement: a Franchisor (owner of trademark, etc) licenses a franchisee to use the trademark in selling their goods

-Agreement’s basically a contract setting out conditions

  • Franchisee pays for the license
  • Franchisor receives a % of sales done
  • Franchisor determines the territory to be served
  • Franchisee handles daily operations
18
Q

Duty of Care vs Duty of Loyalty

A

Duty of Care: partner can’t act negligently

Duty of Loyalty: Don’t compete with the partnership, profits derived by partner in conducting the business remains with the business

19
Q

Piercing the corporate veil

A

-Occurs when a single-shareholder corporation and personal/corporate assets are mixed
(Corporation has no separate identity)

-Occurs when corporate formalities aren’t observed

20
Q

Corporation by Estoppel

A

If a business acts like a corporation, it can’t avoid liability by claiming it’s not one

21
Q

Jurisdiction for a sole proprietorship

A

Not a separate legal entity, jurisdiction is same as it is for a regular person

22
Q

Jurisdiction for a corporation

A

Deemed a citizen in the state in which its incorporated and in the state where its principal place of business is

23
Q

Jurisdiction for a partnership

A

Deemed a citizen of every state in which its partners reside

Applies to LLCs and LLPs

24
Q

How LLCs are Managed and Taxed

A

Managed
-member managed

Taxed

  • 2+ members taxed as a partnership (pass-through)
  • 1 members taxed as a sole proprietorship
25
Q

Duties of corporate shareholders, officers and directors

A

Duty of Care

  • act honestly
  • exercise normal care
  • do what’s in the best interest of the company
  • stay informed when making decisions
  • supervise officers and employees (for directors)

Duty of Loyalty

  • subordination of personal interests
  • no competition
  • no taking corporate opportunities
  • no insider trading
  • don’t do anything detrimental to minority shareholders
  • no selling control of corporation
  • no conflicts of interest
26
Q

Public corporations

A

Formed by the government for some public purpose (postal service)

27
Q

Private corporations

A

Created either entirely or partly for private benefit or for profit

28
Q

Nonprofit corporations

A

Created for purposes other than making a profit (colleges)

29
Q

Close corporations

A
  • Shares held by few people
  • operated like a partnership
  • management like a sole proprietorship or partnership
  • can restrict transfer of shares
30
Q

S corporations

A

-Close corporations that meet requirements allowing it to be taxed as a partnership

Requirements:

  • corporation is domestic
  • fewer than 100 shareholders
  • only one class of stock
  • no shareholder is a nonresident alien

-avoids federal “double taxation”
(Income taxed to shareholders as personal income)

31
Q

Domestic corporation

A

Formed in one state and does business in that state

32
Q

Foreign corporation

A

Formed in one state and does business in another state

33
Q

Alien corporation

A

Formed in another country and does business in the US

BLAW (5 decks)

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